I Don’t Think The Banks Realise What They’ve Just Acknowledged

New borrowers negotiating home loan terms over roughly two years are likely to pay more than 1.5 percentage points more for their mortgages annually if they have a deposit of less than 20 per cent, including a higher headline interest rate and an increased low-equity margin of 0.75 per cent.

They’ve told us that if your deposit is less than 20% they need to tack on 150 basis points to cover the risk of low equity mortgages.

When you add it to comments by Reserve Bank Governor Graeme Wheeler, who said last week floating mortgage rates could go to 8% by the end of next year, you have a problem for low equity buyers who aren’t fixing their interest rate.

Why? Because 800+150=950 or 9.5% per annum floating rate for low equity borrowers. That will change the affordability equation for a non-trivial proportion of low equity mortgage holders.

I hope all of these buyers are adjusting their Excel spreadsheets regularly to keep track of these things. Do home buying types even use Excel to model their personal finances over time? Bueller? Bueller?